31EU Financial Instruments for SMEs

The coronavirus outbreak is a major shock for the European and global economy.

The crisis has forced many companies to reduce their staff and limit the working hours of their employees. To limit the extent and impact of employment losses, member states have mobilised significant financial resources. Europe’s SURE instrument (Support to mitigate Unemployment Risks in an Emergency) acts as a second line of defence. It provides financial assistance up to € 100 billion in the form of loans. The establishment of SURE is an expression of Union solidarity, whereby the member states agree to support each other by making additional financial resources available through loans.

More direct measures for SMEs in financial distress are implemented by the European Investment Bank (EIB). Two support packages for SMEs affected by the crisis have been developed. The first package was announced in March and intents to mobilise € 40 billion of additional financing for SMEs. It does so by 1) launching dedicated guarantee schemes to banks based on existing programmes for immediate deployment, 2) accelerating and repurposing the EIBs’ multi-beneficiary intermediated lending facilities and other frameworks loans so that banks across Europe could specifically come to the aid of impacted businesses, and 3) reprioritising some EFSI resources to make working capital available for those who need it the most through the purchase of € 2 billion worth of asset-backed securities from banks.

The second package, called the Pan-European Guarantee Fund (EGF), is part of the EU recovery package and plans to mobilise up to € 200 billion in financing. At least 65% of this financing goes to SMEs. It aims to support companies that are viable in the long-term but are struggling in the current crisis. Especially now during the COVID-19 crisis, it is important to strengthen the liquidity of SMEs so that they can continue to run their business.

The InvestEU programme, part of the Multi Annual Financial Framework, is an additional support programme for SME finance by the EIB. It will run between 2021 and 2027 and aims to trigger at least € 650 billion in additional investments. The four policy areas:

are sustainable infrastructure, research, innovation and digitisation, small and medium-sized enterprises, and social investment and skills. The InvestEU Fund is flexible, meaning that it has the ability to react to market changes and policy priorities. The Fund’s main partner will be the EIB Group (for 75% of the EU guarantee). Other partners that can get involved (for the remaining 25%) are international financial institutions and national promotional banks. The opening of the guarantee to national and regional promotional banks aims to better address where the financing needs are and how best to serve them.

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As the COVID-19 pandemic struck hard in regions, Local and Regional Authorities (LRAs) started implementing measures to support their economy. We asked the respondents to indicate what short-term and medium-term measures were introduced for SMEs in response to the crisis. The initiatives Informing SMEs on national and European aid measures (68% of the respondents), Subsidies, loans or guarantees offered by my LRA to secure the liquidity of SMEs (61%), Postponing tax obligations for SMEs (50%) and Coordinating the crisis response strategy of local and regional actors, e.g. banks, chambers of commerce and trade organisations (39%) were mentioned the most. The Region of Breda in the Netherlands also helps SMEs to think on a strategic level in order to make them more resilient for the future. They explain: “We offer coaching and help for SMEs in difficulties, we organise challenges for the new situation and recovery, we help SMEs with the online/

digital transformation, we offer online training and we have programmes to help SMEs rethink their business model.”

Besides LRAs, additional measures were developed by special-purpose institutions such as regional development agencies and private-public partnerships. In the Joensuu region (Finland), for example, webinars are held to share advice from legal professionals and questions are answered on the helpline. In Extremadura (Spain), measures are related to financing and tax payment. A micro-credit line (up to € 25,000 per company at only 1.5%) has been deployed and taxes are (partially) suspended or postponed. The region of Nouvelle-Aquitaine (France) has developed an online platform to link industrial initiatives, while the Trento region (Italy) took actions related to access to credit, simplifying procedures and unburden fiscal (and thereby streamlining processes). Finally, all business owners in the Cantabria region can request a so-called resistance check.

The measures are further strengthened by policies that will potentially improve the resilience of regional economies for the fallout of the COVID-19 pandemic in the oncoming years. The contributing regions mentioned the Reskilling of workers in affected sectors (45% of the respondents), Stimulating the development of essential economic sectors, e.g. food, housing, utilities, healthcare, education (13%) and Stimulating local demand for producers and retailers, e.g. public procurement policies, buy local campaigns, local retail platforms (13%) the most.

There seems to be a large difference in how policies should be arranged. The Region of Barcelona in Spain motivated: “The resilience of SMEs will depend mainly on their ability to finance themselves during the period of falling incomes, either in the form of loans or non-refundable grants. Likewise, the ability of owners and managers to reorient their business and digitally transform the company will be key to overcoming this crisis.” Whereas the Region of Breda, the Netherlands, state: “Two things are of major importance: how is the perspective in your sector, and can management respond to the (changed) perspective? If you have a good plan and the management is capable to implement this, money is mostly not a problem to get.”

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4.2 Digitisation

Since the outbreak of the COVID-19 pandemic, the digital transformation has gained momentum. People were forced to work from home. More than ever, network and information systems are the backbone of economic growth and play a crucial role in society. Some regions, however, have a less developed digital infrastructure and/or make a slow progress towards digitisation. Moreover, more than 60% of SMEs are facing barriers when it comes to digitisation according to a recent Eurobarometer survey. Uncertainty on future digital standards (24%) and lack of financial resources are the most frequently mentioned barriers (23%).⁷³ Below, we discuss regional and European support for SMEs in the digital transition.

The Digital Economy and Society Index

As figure 4.1 illustrates, member states perform differently in terms of connectivity, human capital, use of internet services, integration of digital technology and digital public services.⁷⁴ Finland, Sweden and Denmark score highest on the Digital Economy and Society (DESI) index, while Bulgaria, Greece and Romania all have scores well below the EU average. The differences are even more pronounced at the regional level. In terms of broadband infrastructure and individuals using the internet on a daily basis, for example, rural areas most often lag behind the more densely populated urban areas. Because of the vast differences in starting position and pace of the digital transition across Europe, the Commission’s 2020 SME Strategy and other EU initiatives on the digital performance of SMEs must be tailored to regional conditions.

FIGURE 4.1: THE DESI INDEX SUMMARISES THE DIGITAL PERFORMANCE OF MEMBER STATES

An example of a place-based initiative within the SME Strategy is the support of a dense network of up to 240 Digital Innovation Hubs (DIH). The one-stop shops have a regional character and help companies to become more digitised. They provide skills and training, technical expertise and experimentation (‘test before invest’) and support to find investments. DigitalHUB in Aachen, for example, promotes knowledge exchange between digital enablers (IT firms and digital start-ups) and a growing group of digitally dependent SMEs.

73 European Commission, Flash Eurobarometer 486,219.

74 European Commission, Digital Economy and Society Index (DESI) 2020 Brussels: European Commission, 2020.

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Digitisation and European Support

Competitive sustainability is Europe’s guiding principle for the future. Achieving a climate neutral, resource efficient and agile digital economy requires the full mobilisation of SMEs. This transition to a more economically, environmentally and socially sustainable Europe must go hand in hand with the digital transition.

We asked Local and Regional Authorities whether they agree that digitisation is one of the most important transitions for SMEs. Almost 95 percent of the respondents agreed with the statement, of which 55 percentage point strongly agreed. The Region of Crete (Greece) summarises the relevance well: “Digitisation is an important development strategy tool for SMEs. Their technological modernisation provides them with a competitive advantage and enables them to maintain and expand their market share. Especially now with the COVID-19 pandemic, we saw that companies that were technologically one step ahead managed to continue their activity without major problems.” LRAs, however, should be supported in this digital transition on an EU level.

We asked the LRA’s what the most important priorities are regarding EU level support in the digital transition for SMEs. The four most frequently given answers are illustrated in figure 4.2. The region of Oikeuslaitosta (Finland) added: “Security and individual protection are increasingly emphasised in the digital age. Judicial cooperation is needed at European level. Support for best practices is required.”

According to the Region of Catalonia (Spain): “Europe needs to take the lead in the development of future ICT, that will be the key to guarantee business growth. We need, therefore, strong funding programmes supporting the development of ICT focusing on future SME needs from the very beginning.”

Increased digitisation and connectivity increase cybersecurity risks. Most respondents are aware of the vulnerability to cyber threats, as 47% indicate that cybersecurity, data access and privacy regulations are an important priority for EU level support. In 2019, the Cybersecurity Act came into effect.⁷⁵ It allows the Union to better cope with cross-border cyber-attacks. The mandate of the European Union Agency for Network and Information Security (ENISA) has been expanded, as it received more resources and new tasks. To make sure that ICT systems and services comply with specified requirements, ENISA got a key position in establishing and maintaining a cybersecurity certification system. In addition, ENISA supports member states in the field of awareness-raising (the so-called

‘cyber-hygiene’).

CYBERSECURITY, DATA ACCESS & PRIVACY REGULATION 47%

EU SUPPORT INFRASTRUCTURE AT REGIONAL LEVEL 42%

FUNDING ICT-RESEARCH & ICT-INNOVATIONS 42%

DIGITAL SKILLS AGENDA 32%

FIGURE 4.2: MOST IMPORTANT PRIORITIES REGARDING EU LEVEL SUPPORT IN DIGITISATION

75 European Parliament and European Council, “Cybersecurity Act (Regulation (EU) 2019/881),” Official Journal of the European Union, L151, 7.6.2019, 15-69.

76 European Commission, “A European strategy for data”, Brussels, 19.2.2020 COM(2020) 66 final.

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